Blockchain in Peer-to-Peer Energy Trading
Over the past decade, owing to challenges posed by climate change there has been an urgent global pursuit to a form of energy system in which energy production, transmission, distribution and consumption can all take place in a more sustainable manner. One such mechanism that enables all these processes to take place at a single point and with little or no threat to the environment is the peer-to-peer (P2P) energy trading system based on blockchain technology. In this exchange-like system, passive consumers of electricity become active managers of their own networks, powered renewably by microgrids based on solar or wind generation.
The P2P electricity trading model makes distributed energy resources more accessible and enables consumers to become prosumers. It also makes the local electricity system resilient to power outages and removes energy transportation and distribution apprehensions.
The process removes the role of a middle man, such as electricity distribution companies and government taxes that increase complexity and the overall cost of buying electricity with various feed-in tariffs involved. Additionally, through blockchain, all transactions and documentation take place digitally, securely and automatically. The energy produced is tokenized and stored in the form of energy credits on various blocks on the blockchain where it is traded among neighboring microgrids. Not only does this process allow a fair, intermediary-free energy trading process, but also allows greater induction of renewable energy among consumers which is cheaper, flexible and uninterrupted.
Benefits of P2P Energy Trade
Blockchain-based peer-to-peer innovation in energy trading has many potential benefits, including:
- For homeowners having solar or wind powered microgrids this can present a small source of income, where they could sell excess energy at a price more than they’d receive as feed-in tariff from an energy retailer.
- The production and usage of electricity in a single vicinity removes the need to transport energy from far off power plants. This reduces electricity management costs and energy losses incurred in transportation from central generating sites to customer premises.
- Energy produced from renewable resources relieves the environment of pollution and other greenhouse gases produced in harnessing energy from conventional elements such as coal and fuel.
- The process does not involve a third-party intermediary which cuts down tariffs and maintenance complexities and costs.
- All transactions are stored on the blockchain and cannot be altered, ensuring complete transparency.
The global energy market is estimated to be worth $2 trillion. However, it is mostly centralized by large energy retailers and production owners. The contribution of customers has been negligible within the market over the years. But in the modern age when consumer behavior is moving towards greater than ever ownership, technology has a great role to play within the energy market. In this respect, blockchain-based innovation allows users to make their own energy-related decisions.
Such functionality can be observed in Slovenian company Suncontract, which was the world’s first P2P energy trading platform, introduced in 2018. Since then, the company has made partnerships with other European nations along with blockchain technology and energy companies to provide the platform to households. Replacing energy suppliers with mathematical blockchain-based mathematical algorithms, smart contracts and artificial intelligence, Suncontract has developed a purpose-built app whereby users can set prices and trade energy and also split profits amongst one another.
LO3 is a similar US-based energy solutions company using its technology platform called Pando, where trading of electricity takes place on an auction market. Pando deploys a purpose built blockchain to ensure personal and system data security for trading and transactions.
In a similar program to aid blockchain-based energy trading, Japanese multinational electronics and electrical equipment manufacturing company Mitsubishi Electric partnered with the Tokyo Institute of Technology earlier in 2021 to develop a new blockchain-based P2P energy trading platform for the Japanese energy market. The innovation in the new program is its basis on a distributed optimization algorithm, which can be run on users’ standard PCs requiring minimal computation to share data and trade energy.
P2P energy trading provides electricity prosumers choice over the energy they’re using and where they’re sending it. Power Ledger is an Australian tech-company that has developed a blockchain powered P2P renewable energy trading platform thar uses its blockchain-based products such as MODE VPP to enable energy prosumers to connect to a virtual network of battery storage systems to provide flexible loads in order to optimally monetize their assets. The platform also deploys its digital marketplace and exchange called TradeX to trade environmental commodities such as renewable energy certificates and carbon credits.
Another exciting chapter within P2P energy trading is via smart contracts, normally implemented on the open-source blockchain software platform called Ethereum. TransActive Grid is such a New York based project operating on the Ethereum blockchain to provide a community-based energy market to enable members to buy and sell energy using smart contracts. Through the platform, consumers can choose where to buy energy from, while keeping energy resources local and reducing dissipation losses.
Lition is a similar startup based in Berlin, Germany, providing a mass-market P2P trading platform based on the Ethereum blockchain that provides direct energy exchange via the Lition Energy Ecosystem. The company is currently ongoing further development to create its own proprietary blockchain system.
Blockchain-based P2P energy trading platforms enable exchange of locally generated electricity between neighbors, empowering local businesses and promoting a sense of community. A partnership called “Community Network” between German startups Innogy and Conjoule is based on the very principle.
Community Network is a P2P energy marketplace powered by blockchain to connect local renewable energy producers and neighboring owners of batteries and other generation resources without intermediaries. The companies are also equipping participating households with smart meters to measure energy flows in real time, creating greater transparency about each kilowatt-hour generated and consumed.
The future scenario for P2P Energy Trading
The concept of a peer-to-peer solution to trade energy has been around for many years, and it is only now that significant progress around the narrative is being seen. Apart from the multinational projects and startups mentioned, other countries such as Colombia, Australia, Malaysia, Singapore, Bangladesh and Japan have also been testing pilot projects to assess the economic metrics of a blockchain-based energy system.
The key objective of a P2P market is to establish a transparency mechanism and render greater control for the user over their resources. As the concept is better understood by the masses and increased competition is seen in generation and trade, it has the potential to revolutionize the current power sector. With great advantages to be reaped economically and for the environment using renewable generation, it can be envisaged that further developments and regulations will come into play. With that, P2P energy trading platforms would potentially present an alignment of interests for electricity consumers, prosumers and even power system operators by providing ancillary services to the main grid.